Central Indiana Podiatry, P.C. v. Krueger

• Citation: 882 N.E.2d 723
• Decision Date: 11 March 2008
• Docket Number: No. 29S05-0706-CV-256.,29S05-0706-CV-256.
• Parties: CENTRAL INDIANA PODIATRY, P.C., Appellant (Plaintiff below), v. Kenneth KRUEGER, Meridian Health Group, P.C., Appellee (Defendant below).
• Court: Indiana Supreme Court

882 N.E.2d 723

CENTRAL INDIANA PODIATRY, P.C., Appellant (Plaintiff below), v. Kenneth KRUEGER, Meridian Health Group, P.C., Appellee (Defendant below).

No. 29S05-0706-CV-256.

Supreme Court of Indiana.

March 11, 2008.

James A. Knauer, Steven E. Runyan, Indianapolis, IN, Attorneys for Appellant.

Joseph J. Reiswerg, Carmel, IN, Attorney for Appellee.

On Petition to Transfer from the Indiana Court of Appeals, No. 29A05-0606-CV-313

BOEHM, Justice.

We hold that noncompetition agreements between a physician and a medical practice group are not per se void as against public policy and are enforceable to the extent they are reasonable. To be geographically reasonable, the agreement may restrict only that area in which the physician developed patient relationships using the practice group's resources.

Facts and Procedural History

From 1996 until 2005, podiatrist Kenneth Krueger was employed by Central Indiana Podiatry, P.C. (CIP) under a series of written employment agreements that were renewed every one or two years. Each agreement contained provisions restricting Krueger's activities after any termination. For two years after leaving CIP's employ, Krueger would be prohibited from divulging the names of patients, contacting patients to provide podiatric services, and soliciting CIP employees. Krueger also would be prohibited from practicing podiatry for two years within a geographic area defined as fourteen listed central Indiana counties and "any other county where [CIP] maintained an office during the term of this Contract or in any county adjacent to any of the foregoing counties." CIP maintained an office in two unlisted counties, and another twenty-seven counties are contiguous to one or more of these sixteen. The restricted area thus consisted of forty-three counties, essentially the middle half of the state.

At some point, Krueger worked at CIP's offices in Clinton, Marion, Howard, Tippecanoe, and Hamilton counties. By 2005, he was working three days each week at the Nora office in Indianapolis (Marion County), and one day each at the Lafayette (Tippecanoe) and Kokomo (Howard) offices. In 2005, a Kokomo office employee reported to CIP that Krueger had attempted to kiss her at the office. While CIP was investigating the incident, Krueger, concerned that he might be terminated, obtained an electronic copy of the names and addresses of patients treated at the Nora office.¹ CIP terminated Krueger on July 25, 2005.

In September 2005, Krueger entered into an employment agreement to practice podiatry with Meridian Health Group, P.C. in Hamilton County. Hamilton is immediately north of Marion County and is one of the counties listed in Krueger's noncompetition agreement. Krueger provided a copy of the CIP patient list to Meridian, and along with other Meridian employees, created a letter announcing his employment with Meridian "approximately 10 minutes from [Krueger's] previous office" in northern Marion County. This letter was mailed to patients on September 30, 2005.

When it learned of the letter CIP sought injunctive relief against Krueger and damages from Krueger and Meridian, claiming that Krueger's employment violated the geographic limitations.² The trial court entered a temporary restraining order which was lifted six days later pending a hearing on the request. After a full-day hearing in January 2006, the trial court found the geographic restriction unenforceable and denied CIP's request for a preliminary injunction. The Court of Appeals reversed. Cent. Ind. Podiatry, P.C. v. Krueger, 859 N.E.2d 686, 689 (Ind.Ct. App.2007), reh'g denied. We granted transfer.

The noncompetition agreement's two-year term expired on July 25, 2007, two years after Krueger's termination. CIP's request for injunctive relief is therefore moot. In general, we decline to address the merits of moot claims unless the matter is of public interest and capable of repetition. Horseman v. Keller, 841 N.E.2d 164, 170 (Ind.2006) (citing Ind. Educ. Employment Relations Bd. v. Mill Creek Classroom Teachers Ass'n, 456 N.E.2d 709, 712 (Ind.1983)). This case meets this standard. Injunctive actions based on physician noncompetition agreements raise significant policy concerns and recur frequently. See Sharvelle v. Magnante, 836 N.E.2d 432 (Ind.Ct.App.2005) (ophthalmologist); Duneland Emergency Physician's Med. Group, P.C. v. Brunk, 723 N.E.2d 963 (Ind.Ct.App.2000) (emergency room physician); Norlund v. Faust, 675 N.E.2d 1142 (Ind.Ct.App.1997) (optometrist). Moreover, full appellate review will often require more time than the term of the noncompetition agreement, so the need for guidance to trial courts in the future dictates that we address CIP's claim for injunctive relief.

Standard of Review

To obtain a preliminary injunction, the moving party must demonstrate by a preponderance of the evidence: (1) a reasonable likelihood of success at trial; (2) the remedies at law are inadequate; (3) the threatened injury to the movant outweighs the potential harm to the nonmoving party from the granting of an injunction; and (4) the public interest would not be disserved by granting the requested injunction. Apple Glen Crossing, LLC v. Trademark Retail, Inc., 784 N.E.2d 484, 487 (Ind.2003) (citing Ind. Family & Soc. Servs. Admin. v. Walgreen Co., 769 N.E.2d 158, 161 (Ind.2002)). We review a trial court's grant or denial of a preliminary injunction for abuse of discretion. Id. at 488.

I. Enforceability of the Noncompetition Agreement

Krueger raises four issues that bear on the likelihood of CIP's success at trial: (1) whether the noncompetition agreement is void as against public policy; (2) whether the noncom-petition agreement is reasonable; (3) whether his actions were justified by the Indiana Administrative Code; and (4) whether the employment contract is unenforceable because of a prior material breach.

A. Public Policy

Krueger argues that the noncompetition agreement is void as against public policy because noncompetition agreements involving physicians interfere with the physician-patient relationship. There is some force to this contention. Noncompetition agreements are justified because they protect the investment and good will of the employer. In many businesses, the enforceability of a noncompetition agreement affects only the interests of the employee and employer. A noncompetition agreement by a physician involves other considerations as well. Unlike customers of many businesses, patients typically come to the physician's office and have direct contact with the physician. If an agreement forces a physician to relocate outside the geographic area of the physician's practice, the patients' legitimate interest in selecting the physician of their choice is impaired. Moreover, the confidence of a patient in the physician is typically an important factor in the relationship that relocation would displace. In both respects physicians are unlike employees in many businesses. The legal framework applicable to these relationships needs to take these differences into account.

Whether physicians should be prohibited from entering into noncompetition agreements is essentially a policy question. Three states have statutes prohibiting physician noncompetition agreements.³ In the absence of any Indiana legislation on this point, Krueger points to an American Medical Association ethics opinion discouraging but not prohibiting noncompetition agreements.⁴ Krueger also cites a recent Tennessee Supreme Court case, Murfreesboro Medical Clinic, P.A. v. Udom, which relied largely on the AMA opinion in holding that essentially all physician noncompetition agreements violate public policy. 166 S.W.3d 674, 684 (Tenn.2005). For the reasons expressed below, we disagree, and note that the Tennessee legislature has since acted to permit physician noncompetition agreements. See Act of June 21, 2007, 2007 Tenn. Pub. Acts 487 (to be codified at Tenn.Code Ann. § 63-1-148, effective Jan. 1, 2008) (permitting physician noncompetition agreements if they are in writing, last two years or less, and keep within certain geographical limitations).

The AMA's views of noncompetition agreements between physicians were in place when we upheld such agreements in Raymundo v. Hammond Clinic Ass'n, 449 N.E.2d 276 (Ind.1983). At that time, we rejected the claim that "public policy precludes medical doctors from entering into or enforcing non-competition covenants," and we adopted a reasonableness standard for physician noncompetition agreements. Id. at 280-81. Raymundo is consistent with the substantial majority of United States jurisdictions in permitting reasonable restrictions. See Ferdinand S. Tinio, Annotation, Validity and Construction of Contractual Restrictions on Right of Medical Practitioner to Practice, Incident to Employment Agreement, 62 A.L.R.3d 1014 §§ 6-25 (1975).

The Supreme Court of Illinois also recently considered the enforceability of noncompetition agreements between physicians and was presented with the same authorities cited by Krueger. The court concluded that the issue is essentially a balancing of policy considerations best left to the legislature. Mohanty v. St. John Heart Clinic, S.C., 225 Ill.2d 52, 310 Ill. Dec. 274, 866 N.E.2d 85, 95 (2006) ("[C]ountervailing reasons exist which would militate against any deviation from our longstanding practice of finding reasonable restrictive covenants in medical employment contracts enforceable.... For this reason, we believe that prohibiting restrictive covenants in medical practice contracts is a decision better left to the legislature, where the competing interests can be fully aired."). We agree with the Supreme Court of Illinois. Raymundo has been on the books for over twenty years, and our legislature has not seen fit to address the subject. Any decision to ban physician noncompetition agreements altogether should be left to the legislature.

B. Reasonableness

This Court has long held that...